Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

NEW$ & VIEW$ (28 DECEMBER 2015)

Why Weak Currencies Affect Exports Less Central banks around the world have loosened monetary policy this year in the hopes of nudging down currencies and giving a lift to exports. But it hasn’t had much of an effect this time. The reason? A change in what exports are made of.

(…) What has changed is where businesses source the things they need to make the products they export. Manufacturers once found most components needed to make their goods at home. Now they increasingly look abroad for such inputs. As a result, exports now incorporate a lot more imports.

It is still the case that when a currency such as the euro weakens, it reduces the price of goods sold by German manufacturers in the U.S. But it also increases the price of the things that German manufacturers import to make those exported goods. (…)

The foreign content of Switzerland’s exports, for instance, increased to 21.7% in 2011 from 17.5% in 1995, while the imported content of South Korea’s exports almost doubled, to 41.6% in 2011 from 22.3% in 1995.

Economists at the International Monetary Fund and the World Bank have used those measures to assess whether currency movements have the same impact they once did on exports and imports. They found that the effect has in fact reduced over time, by as much as 30% in some countries.

(…)

the degree to which a currency movement boosts or reduces exports depends on how large their foreign content is. For the economy as a whole, the foreign share of U.S. exports is at the lower end of the global range, at around 15%, compared with more than 25% in Germany.

“It’s more complicated as a story for the U.S. because of the low foreign content,” said Sebastian Miroudot, a trade economist at the OECD.

Shale’s Running Out of Survival Tricks as OPEC Pumps

(…) The Energy Information Administration now predicts that companies operating in U.S. shale formations will cut production by a record 570,000 barrels a day in 2016. (…)

“You are going to see a pickup in bankruptcy filings, a pickup in distressed asset sales and a pickup in distressed debt exchanges,” said Jeff Jones, managing director at Blackhill Partners, a Dallas-based investment banking firm. “And $35 oil will clearly accelerate the distress.” (…)

Russia says Saudi Arabia destabilized oil market: TASS Saudi Arabia has destabilized the global oil market by increasing production, TASS news agency quoted Russian Energy Minister Alexander Novak as saying on Monday.
Farmers Suffer From El Niño Higher temperatures and lower rainfall in eastern Australia, Southeast Asia and India are affecting industries from Australia’s traditional cattle ranching to Vietnam’s coffee crop.

(…) Since May, El Niño has brought high temperatures and lower-than-normal rainfall to eastern Australia, Southeast Asia and India. The drier conditions make it more costly and time-consuming to produce many agricultural products, a factor that has driven up prices in the latter half of 2015. Futures of agricultural commodities have risen since June, with Malaysian palm oil up 9.6% and raw sugar 25% higher.

Other regions have benefited from the weather system. In South America and the U.S., El Niño has brought ideal conditions to the region, supporting bumper grain crops. (…)

The Food and Agriculture Organization of the United Nations already expects global rice production to contract in 2015 due to the weather and it could fall further depending on El Niño’s impact over the coming months. The Australian government had to downgrade expectations of a bumper wheat crop after a lack of rainfall in the weeks before harvest hit yields.

NEW$ & VIEW$ (24 DECEMBER 2015): Merry Christmas

Consumers Keeping Growth Afloat Optimistic consumers are keeping the U.S. economy on track for continued modest growth, despite weakness overseas and a manufacturing slump at home.

(…) Even with healthy consumer spending, however, the U.S. economy seems unlikely to accelerate much beyond its average postrecession growth rate of 2.2% anytime soon as it faces powerful forces like demographic changes and slow productivity growth. (…)

Consumer spending rose 0.3% in November from a month earlier, the Commerce Department said Wednesday, and personal income also rose 0.3%. The personal saving rate last month was 5.5%, ticking down from October but still at its second-highest level since the end of 2012. (…)

Meanwhile, overall inflation remains subdued, with the broad personal consumption expenditures price index rising just 0.4% in November from a year earlier, the Commerce Department said Wednesday. Underlying inflationary pressures appear steady, with prices excluding food and energy rising 1.3% on the year last month.

From Haver Analytics:

Personal consumption expenditures increased 0.3% during November (2.9% y/y) following no change in October, revised from 0.1%. (…) Spending also rose 0.3% (2.5% y/y) in constant dollars as prices remained unchanged. A 1.4% increase (6.3% y/y) in real home furnishing & appliances purchases led last month’s gain as it added to a 0.3% rise. Recreational goods buying was notably strong and rose 1.0% (10.1% y/y) on the heels of a 1.6% jump. Real motor vehicle purchases gained 1.0% (-0.2% y/y), rebounding from a 2.2% fall. Nondurable goods sales also strengthened 0.9% in constant dollars (3.0% y/y) after two months of slight decline. Real purchases at gasoline filling stations were notably firm, rising 1.6% (2.4% y) and rebounding from a 2.1% shortfall. Clothing spending strengthened 1.1% in real terms (2.1% y/y), food & beverage buying also gained 1.1% (1.1% y/y) but “other” purchases improved a lesser 0.5% (5.2% y/y). Real spending on services was little-changed (2.0%) for a second consecutive month. Real health care outlays rose 0.2% (3.6% y/y), the smallest rise since April, but recreation services spending fell 1.1% (-0.0% y/y) after a 0.1% rise.

Personal income improved 0.3% (4.4% y/y) after an unrevised 0.4% increase. A 0.2% rise had been expected. It was powered by a 0.5% gain (4.5% y/y) in wage & salaries which followed a 0.6% rise. Rental income jumped 0.8% (7.2% y/y) for the second straight month. Transfer receipts rose 0.3% (5.2% y/y), driven by a 2.2% jump (13.4% y/y) in payments to veterans. Medicare receipts rose 0.5% (4.3% y/y) for a second month. Jobless insurance benefits recovered 0.9% (0.9% y/y) after declines in three of the prior four months. Proprietors earnings ticked 0.1% higher (2.7% y/y) after two 0.4% increases. Dividend earnings declined 0.8% (+3.2% y/y) while interest earnings fell 0.2% (+3.1% y/y) for the second straight month.

Disposable personal income increased 0.3% (3.9% y/y) after a 0.4% gain. Adjusted for price inflation, take-home pay rose 0.2% (3.5% y/y), the smallest rise since June.

The personal savings rate eased to 5.5% from an unrevised 5.6%. The rate remained nearly the highest since 2012. Personal saving increased 23.3% during the last twelve months.

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Malls Reel as Web Roars With Holiday Shopping

(…) Even as the margin of error to have gifts comfortably arrive before the holiday melted,shoppers chose the Internet over a trip to the mall. Sales at physical stores fell 6.7% over the most recent weekend, while traffic declined 10.4%, according to RetailNext, which collects data through analytics software it provides to retailers. That is worse than the 5.8% decline in sales and the 8% drop in traffic recorded from Nov. 1 through Dec. 14. (…)

Retailers have faced challenges this year that include unusually warm weather that has damped demand for coats, sweaters and other winter gear, as well as a decline in spending by tourists visiting the U.S. as a result of the strong dollar. (…)

Online-only retailers, however, have pulled back on broad promotions in December, according to PwC research. “The leading online-only retailers aren’t playing the big promotion game as much. They are using big data and tailoring personal curated items,” to spur online shoppers to buy, said Steve Barr, retail consultant at PwC.

E-commerce sales rose 11.8% from Nov. 26 through Dec. 20 compared with a year ago, according to ChannelAdvisor Corp., which makes e-commerce software and measures online transactions. Forrester Research Inc. expects e-commerce to account for 14% of retail sales in November and December. (…)

According to RetailNext, shoppers who did trek to stores during the last weekend before Christmas spent more per visit than last year, but the last-minute rush likely won’t make up for what is turning out to be a lackluster season.

Craig Johnson, the president of research firm Customer Growth Partners, estimates total sales are likely up 3.1% so far for the season, less than his prediction for a 3.2% increase. He is holding out hope that retailers can make up lost ground in the week after Christmas, when 10% to 15% of holiday sales occur, according to the National Retail Federation.

And in what could be a rare bright spot for retailers with physical stores, 47% of consumers polled by the NRF said they planned to shop in stores that week, compared with 43% who said they planned to shop online.

U.S. Durable Goods Orders Little Changed in November

Durable goods orders were little changed in November (+1.2%y/y) following a 2.9%m/m jump in October (revised down slightly from the initially reported 3.0%m/m rise). Action Economics’ Forecast Survey had anticipated a 0.7%m/m decline. A swing in orders for nondefense aircraft and parts was the major source of the November slowdown. Nondefense aircraft orders slumped 22.2%m/m in November after having surged 78.7%m/m in October. The timing of the Dubai airshow was likely behind this wide monthly swing in aircraft orders. Excluding orders in the transportation sector, other orders slipped 0.1%m/m (-1.9%y/y) after a 0.5%m/m increase in October. Market expectations looked for an unchanged reading.

Capital goods orders also moderated in November after a good start to the fourth quarter in October. Core capital goods orders (capital goods orders excluding defense and aircraft) slipped 0.4%m/m following a downwardly revised 0.6%m/m increase in October (originally +1.3%m/m). This left these orders up 1.3% AR from the third quarter average. Core capital goods shipments remained tepid in November. They fell 0.5%m/m after a downwardly revised 1.0%m/m fall in October (originally -0.5%m/m). This left these shipments down 4.8% AR from the third quarter average and augurs a weak reading for business equipment spending in the Q4 national accounts.

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Investors Pull Out of Mutual Funds at the Fastest Rate in Two Years

Net redemptions reached $28.6 billion in the week ended Dec. 16, according to a statement from the Investment Company Institute, a trade group. It was the biggest weekly outflow since June 2013, ICI data show.

Some of the redemptions might reflect year-end tax-loss selling, which are sales made for tax purposes, ICI Senior Economist Shelly Antoniewicz said in the statement.

Investors withdrew $11.1 billion from stock funds, $12 billion from bond funds and $5.6 billion from funds that buy a mix of stocks and bonds. Municipal bond funds attracted $647 million, the only category that saw inflows.

Mutual funds have experienced net redemptions every month since July, according to ICI data. In each of the first six months of the year, funds gathered money.

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